Background: selecting your accounting basis
As a business owner, you will need to determine which accounting basis you’ll use to record your accounting transactions in Patriot Software: Cash Basis, Modified Cash Basis, or Accrual Basis.
- Cash Basis is the simplest method, and will meet the needs of most small businesses with no inventory, fixed assets, or loans. You will use a limited number of accounts, record your income when you receive it, and record expenses when you pay them. Note: If you also have Patriot Payroll Software, you can only choose cash basis if you are a full-service payroll customer with no deductions or contributions. Otherwise, you will need to choose “Modified Cash Basis” in order to have a liability account to record payroll entries.
- Modified Cash Basis records income and expenses the same way as cash basis, but you can also track more accounts such as fixed assets or loans.
- Accrual Basis is more complex, using more account categories. You will record your income when you send invoices and money is owed to you, and record expenses at the time you are billed. You may change your accounting basis later as your business needs change.
Here is a breakdown of the different types of accounts you can use with each accounting basis in Patriot Software:
For a more detailed explanation, see our blog article about cash basis vs. accrual basis accounting.
How to choose your accounting basis in Patriot Software
You will select your accounting basis at the time that you first set up your account. Choose either Cash Basis, Modified Cash, or Accrual Basis and click Continue to set up the rest of your account.
To change your accounting basis later
- Accounting > Settings > Transaction Settings > Edit
- Select the Accounting Basis
- Click Save